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2017 Medical Malpractice AnnualReportClaims closed from Jan. 1, 2012 through Dec. 31, 2016Sept. 1, 2017Mike Kreidler, Insurance Commissionerwww.insurance.wa.govOIC WA 360-725-7009 P.O. Box 40255 Olympia, WA 98504-0255

About this reportEarly in the last decade, a “hard market” emerged nationally for most types of insurance. During this period, medical professionalliability insurance became expensive and hard to find for many types of medical providers and facilities.In 2006, the Legislature enacted comprehensive health care liability reform legislation (2SHB 2292) to address a number of concerns,including the cost and availability of medical professional liability insurance. This law also created reporting requirements for medicalmalpractice claims that are resolved and closed, with the intent to collect data to support policy decisions. The OIC began publishingannual reports summarizing the data in 2010.This is the eighth annual report. It includes a snapshot of the medical malpractice marketplace and summary closed claim andsettlement data.This report has three sections:1. The current condition of the medical professional liability insurance market.2. Summarized closed claim data reported by insurers, risk retention groups and self-insurers. 13. Summarized lawsuit-resolution data reported by attorneys.1For simplicity, we will use the term “insurers” when referring to admitted insurers, surplus lines insurers and risk retention groups.2017 Medical Malpractice Annual Report 2

Table of Contents2017 Medical Malpractice Annual Report . 1About this report . 2Key statistics . 5About the medical professional liability insurance market . 5About court verdicts . 6About claim data submitted by insurers and self-insurers . 7About lawsuits filed and settled by attorneys . 10Introduction . 11Snapshot of the medical professional liability insurance market . 14Market participants . 14Loss history . 17Lower claim reserves . 19Washington state market in 2016 . 21The national market in 2016 . 22Information about medical malpractice claims. 24Lawsuit summary . 26Method of settlement . 27Size of indemnity payments . 30Claims with paid indemnity less than and more than 500,000 . 32Defense costs by size of indemnity payment . 33Defense costs for claims with paid indemnity less than and more than 500,000. 35Paid indemnity and defense costs by age of claim . 362017 Medical Malpractice Annual Report 3

Type of insuring entity . 39Severity of injury . 40Type of health care organization . 43Location in the facility . 45Type of medical provider . 47Claim allegations. 51County statistics . 60Gender statistics. 62Age statistics . 63Trends. 65Statistics from medical malpractice lawsuits . 67How lawsuits were settled . 68Settlements by county . 69Gender of plaintiff . 70Age of plaintiff . 71Report limitations . 72Appendices . 74Appendix A: Profitability .75Appendix B: Reserve development.78Appendix C: Rate filing information .81Appendix D: 2015 NAIC profitability report - medical professional liability insurance .842017 Medical Malpractice Annual Report 4

Key statisticsAbout the medical professional liability insurance market The pure loss ratio 2 for 2016 was 48.5 percent. This is similar to recent ratios, which averaged 52.9 percent between 2013 and2015, but much higher than the 36.2 percent average from 2006 to 2012. Defense costs were relatively low in 2016, dropping to 16.2 percent of premium compared to 22.6 percent for 2015. Annual written premiums continued to decline for the sixth straight year, dropping by 3.9 million to 157 million in 2016. Lower claim reserves have fueled profitability since 2007. Insurers have lowered reserves for older claims, leading to lowerincurred loss and defense costs in recent years. 3 For example, Physicians Insurance has lowered reserves by 208 million overits original estimates. Reserves released from prior years translate into profit for the current year. Profitability remains strong, though declining. The operating ratio for Physicians Insurance, the admitted insurer with thelargest market share in Washington, was 90.6 percent in 2016, compared to 87.5 percent for the prior five years. 4 Medical professional liability rates are stable or declining. The most recent physicians and surgeons rate change filingsubmitted to the OIC was a 7.6 percent reduction by Medical Protective Co. for 2015 policies. Washington Casualty Co. filed a10.4 percent rate reduction in 2014. Physicians Insurance has not filed to change its rates since 2009.Pure loss ratio means incurred losses divided by direct earned premium. Incurred losses include paid claims and the change in reserves for pending and unknownclaims. A pure loss ratio does not include defense and cost containment expenses, which are a significant part of the cost to resolve claims.3 Claim reserves are money set aside to meet future payments associated with claims incurred but not settled on a given date. If a claim reserve is too high or aninvestigation shows there is no legal responsibility to pay the claim, the insurer either lowers the reserve or removes the claim reserve from its books. If an insurerlowers total claim reserves for past years, incurred losses are lower in the current year.4 Operating ratios measure overall profitability from underwriting and investment activities. Operating ratios are calculated using countrywide data.22017 Medical Malpractice Annual Report 5

About court verdictsInformation submitted by insurers and self-insurers cannot be directly compared to lawsuit data submitted by attorneys. Insurers andself-insurers report data separately for each defendant, while attorneys submit one final settlement report that includes paymentsmade by all defendants. In spite of these differences, some information reported by both groups about lawsuits is comparable. From 2012 through 2016:ooInsurers and self-insurers paid 25.6 million for plaintiff verdicts or judgments. Judgments and verdicts were few innumber. Of the 20 plaintiff verdicts or judgments, 18 had a payment5 averaging 1.4 million.Attorneys reported that defendants paid 17.4 million to plaintiffs when a lawsuit led to a plaintiff verdict or judgment.Judgments and verdicts were few in number, only six, and resulted in an average payment of 2.9 million. 6 Most claims resolved by the courts end in favor of the defendant. Insurers and self-insurers reported that 164 claims wereresolved by the courts in their favor in 2016, compared to 189 per year on average for the previous four years. Defending lawsuits is costly to insurers and self-insurers. Both groups spent 69.5 million defending lawsuits in which theyultimately prevailed—2.7 times the total indemnity payments for plaintiff judgments or verdicts.In cases where a lawsuit has more than one defendant, some defendants may not be responsible to compensate the claimant.These data suggest that lawsuits that get to the trial stage often have more than one defendant, and the compensation to the plaintiff is higher than the averageindemnity payment reported by insurers and self-insurers.562017 Medical Malpractice Annual Report 6

About claim data submitted by insurers and self-insurersTotal claims: Insurers and self-insurers reported closing 5,237 claims between 2012 and 2016 with an indemnity payment, defensecosts, or both types of payments.7 8 Commercial insurers reported 3,091 claims, self-insured entities reported 1,958 claims, and riskretention groups reported 188 claims. 9Payments to claimants: Insurers and self-insurers paid 618 million on 2,413 claims over the five-year period, or 256,313 per paidclaim. Average indemnity payments over the five-year period varied, from a low of 169,887 in 2012 to a high of 378,525 in 2015.Median indemnity payments were 75,000 in 2015 and 2016, higher than the 50,000 median for the five-year period. Economic loss payments totaled 363 million, an average of 150,520 per paid claim. On average, insurers and self-insurersattributed 58.7 percent of each claim payment to economic loss. Insurers and self-insurers closed 46.1 percent of all claims with an indemnity payment to a claimant. Most, but not all, claimswith paid indemnity also had defense and cost containment expenses. Of the claims closed with an indemnity payment, 7.3 percent closed with a payment of 1 million or more. These claimsaccount for 52.3 percent of total paid indemnity over the five-year period.Defense costs: Insurers and self-insurers paid 251 million to defend 4,437 claims, an average of 56,598 per claim. Average defensecosts were higher in 2016 at 65,481 than in the prior four years, which averaged 54,730.This report includes claims data reported and edited through March 22, 2017.For simplicity, this report substitutes “defense costs” for the technical phase “defense and cost containment expenses.” Defense and cost containment expensesare expenses allocated to a specific claim to defend an insured, including court costs, fees paid to defense attorneys, and fees for expert witnesses. These expensesdo not include the internal costs to operate a claims department.9 Commercial insurers include both admitted and surplus lines insurers.782017 Medical Malpractice Annual Report 7

Method of settlement: Insurers and self-insurers settled most claims with paid indemnity by negotiation between the claimant andthe insurer. For claims with an indemnity payment, insurers and self-insurers settled: 73.7 percent of claims by negotiation, and these settlements comprised 60.3 percent of the total paid indemnity. 18.9 percent of claims by alternative dispute resolution (arbitration, mediation, or private trial). These settlements comprised34.8 percent of the total paid indemnity over the five-year period.Payments by type of medical provider: The insurer or self-insurer identified the type of medical provider in 80.4 percent of theclosed claim reports. 10 Claimants made the remaining claims against an organization, not an individual medical provider. Nursing resulted in the most closed claims at 655. Of these claims, 477 resulted in paid indemnity averaging 156,697. Medianpaid indemnity was 25,000. For physician specialties, general surgery had the most claims at 296, with 125 resulting in paid indemnity averaging 400,469.Median paid indemnity was 100,000. Pediatrics had the highest average paid indemnity of 1.2 million, with median paidindemnity of 300,000.Payments and defense costs by age of claim:10 The more time that passed between when the insurer or self-insurer was notified of a claim and when the claim was settled,the higher the payments for the claim tended to be. Claims closed within the first year had average paid indemnity of 47,380.Claims that took at least five years to settle had average indemnity payments of 761,604. The amount paid for defense costs also increased with the age of the claim. For the 1,162 claims with defense costs closedwithin one year after report date, average defense costs were 6,919. That figure rose to 37,290 for 1,509 claims that closedin the second year. The 177 claims with defense costs that closed five or more years after report date had average defensecosts of 224,169.Physician specialties, dental specialties and other types of medical providers.2017 Medical Malpractice Annual Report 8

Regional comparisons: Just under one-third of the claims, or 1,606, were in King County. Of these, 48.1 percent resulted inindemnity payments totaling 213.8 million, an average of 276,984 per claim.Allegations: Improper performance was the most common allegation, with 1,004 claims and 470 indemnity payments that averaged 147,236. Vicarious liability was the second-most common allegation, with 771 claims and 271 indemnity payments that averaged 301,948.2017 Medical Malpractice Annual Report 9